Spectrum Fuels Speed and Prosperity

Recon Analytics recently completed an exhaustive study of the US mobile market and how it compares with its G7 peers (funded by CTIA). This article presents a summary of the study—the results of which are available here.

The US mobile broadband experience is the stuff of lore around the world, in part due to the smartphone revolution that started here, enabled by large, reliable wireless networks and innovative pricing strategies. The US was also the first to roll out fully commercial large-scale LTE networks that offered significantly higher speeds than ever before, and still leads the world in LTE subscribers and deployment. But America’s leadership is in danger. As we see in Exhibit 1, the US recently fell behind in wireless download speeds compared to three other countries in the G7, largely as a result of its own success. Immediate and targeted action by the US government to allocate more spectrum for 4G services is critical if the US is to retain its global leadership role. We are beginning to feel the consequences of a six-year gap between major FCC auctions.

Exhibit 1: Average Mobile Data Speed by Country

Source: Ookla; Capture Date June 13, 2014

Spectrum is the oxygen that makes higher achievable speeds for LTE subscribers possible. At least on paper, the US seems to have a decent amount of spectrum, but it is generally already used for current services such as GSM, CDMA, and HSPA. Even with carriers in the other G7 countries also supporting earlier technology generations, the fact is that the US has utilized the least amount of spectrum for LTE compared to its peers in delivering great service to Americans (see Exhibit 2). In the simplest of terms (and all other things being equal), if there is less spectrum available per user, it will impact customers’ speeds.

Exhibit 2: Deployed LTE Spectrum

Source: Recon Analytics and Q1 2014 operator reports, 2014

If spectrum is the oxygen, then capital expenditures are the fuel that accelerates wireless networks. Unsurprisingly, carriers in the United States, which has the most people among the G7 countries and a significantly larger area to cover than others, spend substantially more on capex than carriers in any other G7 member country. Japan, with the second most inhabitants, spends the second most. The smallest nation by population, Canada, spends the least. What is striking, though, is that in the midst of this technological transformation, only Italy and Canada have not continuously increased their capex. This compares to the more than $34 billion the US spent in 2013, which is an all-time industry high.

One impediment for the US is a considerably less concentrated population when compared to other G7 countries. Population density is an important part of the equation used to establish the Recon Analytics Urban Agglomeration Index, and it shows that the US is significantly more spread out. Moreover, the top urban agglomerations in the US add up to a much smaller slice of its overall population than the top urban agglomerations in its G7 peer countries. As a result, it’s more expensive for US carriers to deploy faster networks, and achieve the economies and efficiencies that may be attained in more densely populated countries. This makes the US lead in LTE deployment even more impressive.

Despite these challenges, overall, American smartphone owners are tied with Germany as the most satisfied.

The US pioneered bringing 4G LTE to a mass audience while continuously increasing average download speeds. And now it faces a challenge. Three of its G7 compatriots surpass its lead in download speeds.

What is at the root of this loss of speed leadership? In short, other G7 countries have made significantly more spectrum available for 4G than the United States. The influx of new spectrum, combined with fewer 4G subscribers, has resulted in data speeds skyrocketing in several countries. The only thing preventing the US from falling even further behind are the massive capital investments made by the US wireless providers, which are the largest in totality and second largest per person among the G7 countries.

Our international comparison shows that more spectrum results in faster download speeds. Faced with the convergence of limited spectrum, dispersed population and high usage, US operators are continuously and consistently pumping massive capital investments into their infrastructures to provide Americans with the best possible networks. As a result, data speeds are increasing. That increase in speed, combined with aggressive network management designed to ensure consumers have a robust mobile broadband experience, has driven customer satisfaction in the United States.

At the same time, other countries have accelerated their download speeds substantially faster because they have considerably more spectrum available and deployed for 4G, and because of their geographic and population density advantages. Another contributing factor is that 4G is treated like a premium service – with extra costs – in many countries, which reduces the adoption of 4G solutions and usage of LTE networks. Driven by strong competition, US providers pushed aggressively to transition the subscriber base to 4G solutions without extra fees or charges, producing greater traffic than in countries where download speeds are tied to premium pricing, and placing a greater strain on 4G networks.

It’s clear that the economic and social benefits from wireless technology and services are beyond anything we could have predicted even 20 years ago. Network infrastructure and commitment to capex spending are critical elements that are already in place for the US to achieve superiority once again. The missing piece is spectrum. To regain its lead, the United States should quickly allocate more licensed spectrum to wireless operators, in larger contiguous blocks. When that happens, download speeds will increase more rapidly and US consumers will benefit even more than they already have from the advanced wireless services they have available.